1. Field of the Invention
The relevant technical field is market-based pricing implemented in software for commerce in an electronic marketplace, using pricing models, and allowing a vendor to identify and better compete against rivals, a subset of all sellers in a marketplace.
2. Description of the Related Art Including Information Disclosed under 37 CFR 1.97 and 1.98
The World Wide Web (the web) portion of the Internet provides a previously undreamt-of variety of goods and services at competitive prices as sellers vie in the broadest example of consumer capitalism the world has experienced.
To remain competitive, sellers must constantly be aware of the prices of their competitors. This problem is particularly acute on the web, where a consumer can readily compare prices and purchase from a seller of choice almost instantly, thus making competition ruthless.
The web site Half.com, for example, is an electronic flea market, where sellers post offering of the same goods at different prices. From a consumer perspective, the different prices may be accounted for by different quality in used goods, and a seller banking on its reputation to squeeze slices of what economists call ‘rent’ (excess profit). Reputation and quality equal, the higher-priced good stays a listing, while the lower-priced good is chalked up as a sale.
As U.S. Pat. No. 6,076,070 (Stack) states: “Currently, three main approaches exist for performing price comparisons (and therefore, indirectly, price adjustments). A vendor can make periodic comparisons with competitors' prices, can compare competitors' prices when a customer complains, or can compare prices when a customer makes a price inquiry.
“Periodic comparisons of the prices of competitors have drawbacks in that periodic comparisons may not reliably keep up with changes by competitors. Also, a great amount of effort is required in comparing all prices of all common products against a fixed set of competitors.”
The “great amount of effort” Stack writes of becomes greater because there is no ‘fixed’ set of competitors on the web: the web continues to expand, with new competitors entering and others exiting (the ones whose goods stay as a listing, not a sale). Further, a seller competes most fiercely against its rivals, other similar sellers in reputation and market positioning, not equally against all other sellers in a marketplace. To optimize pricing, a seller must be able to identify and track who its rivals are.
Just as some bricks-and-mortar vendors on Main Street position themselves as upscale, like department stores Nordstroms and Sak's Fifth Avenue, renowned for quality products and service to customer satisfaction at a premium price, or for-the-masses, like the cut-rate sales warehouses Wal-Mart and Costco, e-commerce vendors market-position themselves, even if that concept may seem less obvious on the web. Obviously, all e-commerce web sites are not created equal: some are easier (or harder) to: 1) search and browse for products; 2) know about products from the information given; 3) compare products; 4) buy from; 5) reach and deal with customer service (including returns). Sellers that excel in these factors can afford to price their products at a premium and still rack up sales. Those that excel in the intangibles and price competitively are world-beaters.
Because of certain factors, such as shipping cost and shopping convenience, customers often buy multiple items on the web. Given that scenario, the convenience and transaction peace-of-mind a reputable seller offers may easily offset paying a slightly higher price.
The web site intangibles described above combined with the purchasing cost model (as a contrast, volume versus boutique (specialty item) purchasing) shape a seller's pricing model. The pattern of pricing a seller uses expresses the pricing model that represents the seller's market positioning. Pricing patterns tell the story of the pricing model. So, being competitive is appropriately viewed not as just having the lowest prices, but as having a successful pricing model against rivals who qualify as direct competition.
It is facile to think that, on the web, sellers of the same product compete on price alone. As on Main Street, market positioning results in a stratification of e-commerce sites. While it is relatively easy for customers to click from site to site, purchasing has a transaction cost, most tangibly shipping cost, but other costs relating to customer convenience and pleasure in the shopping experience, including the time it takes to find and purchase and item, and consumer peace of mind that the sellers delivers product in a timely manner with proper order fulfillment.
Relevant prior art is summarized below for the reader's convenience.
U.S. Pat. No. 6,076,070 (Stack) “Apparatus and method for on-line price comparison of competitor's goods and/or services over a computer network”: discloses seeking a price comparison upon customer request of competitors' prices for an item. As quoted earlier, Stack explicitly dismisses the utility of periodic competitive price comparison, and so fails to anticipate the value of that mechanism. Stack particularly fails to anticipate using periodic comparison on a variety of items for sale as a regular method for price-setting. Stack does anticipate using a vendor-set threshold for determining whether a price adjustment may be offered to a user or automatically made. Stack only considers lowering prices, and does not consider the prospect of raising prices. Stack does anticipate that a price reduction from competitive analysis may be temporary or made the regular price.
U.S. Pat. No. 5,960,407 (Vivona) “Automated market price analysis system”: discloses “a system for estimating price characteristics of a product from classified advertisements”. With an exemplary preferred embodiment relating to job offerings, digitized newspapers ads are categorized based upon keyword lexical analysis of ad content. From the data, a price curve is developed. Oddly, prices are assumed to have a normal distribution, and deviation analysis performed with that assumption, regardless of the actual price curve. Regression analysis is performed to distinguish between different qualities in the data. This may make some sense with labor price data, but cannot be construed an appropriate generalized method for accurate derivation of competitive product price data, as it fails to accurately account for discrepancies. Vivona's approach therefore risks polluting the quality of collected price curve data to satisfy the statistical desire for a larger sample size. Vivona does not anticipate filtering data points or accounting for discrepancies in formulation of a price curve. From the results of the price curve and regression analysis, Vivona determines average price. All Vivona's analyses are performed with respect to average price. Vivona does not anticipate different measurements other than average. Vivona does not anticipate competitive price analysis using a subset of marketplace prices based upon characterization of seller pricing models.
U.S. Pat. No. 5,873,069 (Reuhl) “System and method for automatic updating and display of retail prices”: discloses “a computerized price control system for implementing pricing standards/policies”. “The price-changing function of the system is responsive to competitive price data on identical or substantially similar products in multiple geographic markets for multiple competitors.” Reuhl relies upon data gleaned in shopping surveys and input into a computer by hand, not gathered electronically. Reuhl periodically updates prices, as frequently as twice a day. Reuhl only anticipates changing the price to the lowest price found in a geographic are: “the price change function of the system in accordance with the present invention for pricing products in the database implements a pricing strategy (logic) wherein the system user's price is the lowest price in a specified geographic area on a product-by-product basis”. Reuhl does not consider price stability, that is, the negative effect on consumer perception of constantly fluctuating prices.
U.S. Pat. No. 5,822,736 (Hartman) “Variable margin pricing system”: discloses a method that “generates retail prices based on customer price sensitivity”. Hartman bases the method on the assumption that “customers' retail price sensitivity increases as the magnitude of the dollar value of the transaction increases and this increasing sensitivity must be offset with a corresponding decrease of gross profit margin”. Hartman does not postulate a competitive pricing model; the system is cost-plus based, with customer price sensitivity being the only independent variable. Competitors' prices are incorporated only indirectly, as reflected in consumer sensitivity: for example, a product often discounted by competitors is considered as highly price sensitive. Hartman assigns products into groups of profit margins relative to consumer price sensitivity, but then suggests, to satisfy a profit margin goal, to shift products from one price-sensitivity group to another, thus glibly violating whatever discipline the method is supposed to impose.